Average cost

Updated: Aug 20, 2021

The average cost of producing goods, sometimes referred to as the unit cost. It is customary, in the accounting world, to distinguish average fixed cost from average variable cost. There is also an important difference between the short-term average and the long-term average. The average cost of producing a single batch of goods, or of one month’s production, may be very different from the average taken over a long period. This distinction is important in price fixing especially under free competition, for although a company cannot fix prices below the long-term average on a permanent basis it can bring them down to the short-term average and below, where there is a competitive advantage to be gained. Average cost is also used with reference to stock-in-trade, and the valuation thereof.

Reference: The Penguin Business Dictionary, 3rd edt.

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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.